I have solved my issues also with the avatars on wp 3.0.1 and buddypress 1.2.5.2 on a dedicated server and now it works. Here is what i did :
1) I turned off safe mode in Plesk.
2) I used an SSH login session to go to my wp-content directory
3) I did a chown OWNERNAME:GROUPNAME uploads -R command (with the username and the group i have created this with)
I have exactly the same error and I am installing an clean version on a subdomain for WP 3.0.1 and Install Buddypress 1.2.5.2. What i can see is that the uploads, avatars, signup etc, directories get the apache owner and not the owner that the site is created with – so i tried to change the ownership on the directories but still same Error Upload Failed! Error was: Unable to create directory /avatars/ etc. Is its parent directory writable by the server?.
Hi there – have you found a solution for this because I have the same on my wpmu 2.9.1 and buddypress 1.2.4.1 the crop tool are not working at all and 2 images are shown also. Please let me know if you have found the solution.